G
ateway Real Estate AG's (ETR:GTY) shareholders seem unimpressed despite solid profit numbers, and our analysis suggests they might be concerned about underlying details. One key financial ratio to measure a company's ability to convert profit into free cash flow is the accrual ratio. A negative accrual ratio is generally considered good, but a high one indicates paper profits not matched by cash flow.

    For Gateway Real Estate, the accrual ratio for 2023 was 0.26, indicating that its free cash flow fell short of covering statutory profit. In fact, it had negative free cash flow of €102m despite a profit of €165.9m. This raises concerns about high risk, but unusual items have impacted its statutory profit.

    Unusual items boosted Gateway Real Estate's profit by €43m in 2023, which might explain the weak accrual ratio. However, our analysis suggests that these boosts are often not repeated in subsequent years. As a result, we believe Gateway Real Estate's profits give an overly generous impression of its sustainable level of profitability.

    Considering this, investors should be aware of the risks involved and consider factors like return on equity or insider holdings to inform their opinion of the company. We've identified 4 warning signs with Gateway Real Estate that investors should take into account.